NCPA - National Center for Policy Analysis

MONOPOLY-ERA TELECOMMUNICATION TAXES OUT-OF-CONTROL

January 21, 2005

The wireless telephone industry is suffering from monopoly-era telecommunication taxes, says Steve Stanek, writing for the Heartland Institute. With no guaranteed regulated pricing, wireless providers are concerned that state and local tax increases are stunting industry growth.

According to Jim Schuler, director of policy at the Cellular Telecommunications & Internet Association (CITA):

  • In the past decade, the number of wireless subscribers has increased from 16 million to more than 160 million.
  • Since January 2003, wireless telephone service taxes in the United States have grown nine times faster than taxes imposed on general business.
  • In 19 states, a double-digit percent portion of a wireless customer's service bill is due to taxes; in five states -- Florida, Illinois, Nebraska, New York and Washington -- taxes make up more than 20 percent of the bill and several other states are nearly at 20 percent.

The average tax burden for most businesses is about 6.5 percent, while the portion of customers' wireless service bills reached 20 percent in five states, and double-digit percentages in 19 other states.

Economist Scott Mackey reports that many of the taxes imposed by state and local governments are throwbacks to the monopoly telecommunications era.

Mackey also points out that recent studies estimate the price elasticity of demand for wireless services is between -1.12 percent and -1.29 percent, meaning that every 1 percent increase in price reduces demand for the service by between 1.12 and 1.29 percent.

Although major reductions in service costs have helped to offset the tax increases, experts believe growth would have been even greater had the wireless service taxes been held in check.

Source: Steve Stanek, "Wireless Phone Costs Drop, but Taxes Skyrocket," Heartland Institute, January 1, 2005; and Scott Mackey, "The Excessive State and Local Tax Burden on Wireless Telecommunications Service," Kimbell-Sherman-Ellis, June 2004.

For Mackey study:

http://www.kse50.com/pdf/wireless_tax.pdf#search='excessive%20state%20mackey'

 

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